The Harmonization ofFederal Tax Legislation *

Authors: Marc Cuerrier, Sandra Hassan, Louis L'Heureux, Department of Justice Canada

 

Table of Contents

Foreword

Introduction

1.Opening remarks: Underlying Concepts

2.General aspects of harmonization   

2.1. Historical and legal background of Canadian bijuralism

2.2. Certain tax cases involving the concepts of complementarity and uniformity

2.2.1. Examples of cases where complementarity between provincial private law and federal tax law was recognized

2.2.2 Examples of cases where uniformity prevailed

2.3 Issues Raised by the Harmonization of Tax Laws

3. Legislative process and methodology

3 .1 Overall harmonization process

3.2 Harmonization methodology for tax legislation

3.2.2. Characterization of harmonization problems

3.2.2.1. Unijuralism

3.2.2.2 Semi-bijuralism

3.2.2.3 Apparent bijuralism

3.2.3. Harmonization solutions

3.2.3.1 Double

3.2.3.2 Neutral or generic term

3.2.3.3 New definition

3.2.3.4 Asymmetrical provision

4. Study topics and fields of study

4.1  "Propriété effective" / "beneficial ownership"

4.1.1 Trusts

4.1.2Security interest and the securities branch

4.1.3 Acquisition and disposition of property

4.2 Partnerships

4.3 "Right or interest in property" / "droit dans ou sur un bien"

4.4  "Tenure à bail" / "leasehold interest"

4.5 Implicit dissociation

4.6 The concepts of "mandataire" and "agent"

4.7 Harmonization and international law

4.8 Licence

Conclusion

Foreword

This article was written in the summer of 2000 and since then Bills C-24, C-43 and S-22, to which we refer, have all been passed. Bill C-24 (Sales Tax and Excise Tax Amendments Act, 1999) became chapter 30 of the Statutes of Canada (2000).  Bill C-43 (An Act to amend the Income Tax Act, the Income Tax Application Rules and certain Acts related to the Income Tax Act) and S-22 (A First Act to harmonize federal law with the civil law of the Province of Quebec and to amend certain Acts in order to ensure that each language version takes into account the common law and the civil law) died on the order paper because of the federal elections which were held in the fall of 2000.  After having been amended, the contents of Bill C-24 was included in Bill C-22 which was reintroduced before the House of Commons in March 2001.  Bill C-22 became chapter 17 of the Statutes of Canada (2001) on June 15^th, 2001.  As for Bill S-22, it was reintroduced before the Senate as Bill S-4 and became Chapter 4 of the Statutes of Canada (2001) on May 10^th, 2001.

Moreover, the Federal Court of Appeal's decisions are now available for the cases Marcoux v. Canada (2000 D.T.C. 6010) and Markevich v. Queen (99 D.T.C. 5136) (see section 2.2.2).  In the former case, the decision was upheld and in the latter it was reversed.

Introduction**

As a country operating simultaneously the judicial regimes of common law and civil law, the world's two major legal systems, Canada is in a privileged position within the international community. Based on a study undertaken in 1998 by the Law faculty of the University of Ottawa,[i] civil law and common law represent 72% of the world's legal systems, civil law accounting for 43.8%.

While being of unquestionable richness, Canadian bijuralism in combination with official bilingualism poses a major challenge in Canada: addressing four legal audiences. When Parliament finds necessary to make use of private law concepts such as mortgage, property, trust, etc. that fall within the ambit of provincial jurisdiction it must take into account civil law as well as common law in both linguistic versions. To achieve this goal it must use terminology that is specific to each of the two legal systems in both official languages.

Currently, federal legislation covers only partially the four Canadian audiences. The Minister of Justice made the point at a conference in the following terms:

"Despite the historical coexistence in Canada of two major western legal traditions, federal legislation has tended to make civil law, at least at times, an orphan. At times, it created statutes whose very concepts were unique or peculiar to the common law; at times it used terms that had no civil law equivalent or no technical meaning in civil law; and at times it used terms whose meanings were so different in civil and common law that Quebec's courts tended to favor the common law interpretation as a better reflection of Parliament's intent. 

The harmonization project therefore represents an opportunity to correct previous oversights, omissions and unijural constructions in existing federal legislation, and to replace them with wording that accurately reflects the vocabulary, concepts, norms and institutions of Quebec's civil law."[ii]

It is in this context that the harmonization project of federal tax legislation is being pursued as part of a process of legislative revision designed to ensure that civil law and common law are adequately reflected in both linguistic versions. This process is not to be confused with the harmonization of Quebec tax laws with federal tax legislation,[iii] nor with commodity tax harmonization.[iv] Finally, although similar in certain respects, the harmonization of federal legislation should be distinguished from the initiative undertaken by the government of the province of Quebec which involves reviewing public laws as a whole so as to adapt them to the new terminology, concepts and institutions of the Civil Code of Quebec[v].

Tax law has been identified as one of the key areas requiring harmonization along with regulatory law and commercial law. The Department of Justice Canada, in cooperation with the Department of Finance Canada and the Canada Customs and Revenue Agency, plans, in the next few years, to address the harmonization of tax laws and regulations.[vi] It should be noted, right from the start, that the harmonization of tax laws is a practical undertaking, not a byzantine and academic exercise. Taxpayers, program managers, Canada Customs and Revenue Agency officials, to name but a few, are routinely faced with harmonization problems. Harmonization is designed to ensure effective enforcement of federal tax legislation in the civil law as well as the common law jurisdictions. Considering that tax legislation has major patrimonial consequences, it is important to ensure that these laws are correctly understood and applied by all Canadians, whatever the legal system they are governed by.

The first part of this document is intended to set in broad context the harmonization program. The second part will deal with the harmonization work, more specifically the harmonization methodology used, the characterization of problems and the various solutions being considered. The final part of the text will deal with a number of specific harmonization issues raised by the tax community on which the federal government will focus in the coming months.

However, before getting to the core of the subject, we find it necessary to outline a number of underlying concepts in our opening remarks.

1.  Opening remarks: Underlying Concepts

As mentioned in the introduction, Canadian legislation in addition to being bilingual must accommodate two major legal systems of private law, namely common law and civil law. Since the Quebec Act, 1774, the private law regime of the province of Quebec is civil law, of French origin, and the private law of the other provinces is common law, of British origin. Having evolved differently one from the other, these two private law systems involve divergent, often irreconcilable institutions, rules and approaches. For example, the concepts of ownership and trusteeship differ significantly from one system to the other. Thus, Canadian bijuralism and harmonization go hand in hand since harmonization is an exercise undertaken because of the co-existence of two legal systems in Canada.

Another important concept in relation to harmonization is the interplay between public law and private law. Let us bear in mind that while private law governs interpersonal relations, public law governs an individual's interactions with government. Public law may rely on private law, which results in "complementarity", or else it can dissociate itself therefrom and establish its own private law rules, which is referred to as "dissociation".

One may also recall that in our federal system, legislative powers are divided between the federal government and the Canadian provinces. Under the Constitution Act, 1867,[vii] the federal Parliament, whose legislation is intended for the entire Canadian population has, among other things, jurisdiction over taxation, criminal law and unemployment insurance. Generally, these powers are tied to public law. The provinces, on the other hand, have jurisdiction inter alia on property and civil rights and the administration of justice. Property and civil rights are at the core of private law. For example, the rules governing ownership, contracts, trusts, mortgages, are all within provincial jurisdiction.

In addition to bijuralism, the sharing of powers in our federation poses specific challenges in the area of harmonization. Thus, when Parliament legislates according to one of its powers, such as income tax, it has no other choice but to use private law terms and concepts which lie within provincial jurisdiction. From then on, two options are available.

Documentary record  "A Bill to Harmonize Federal Law with the Civil Law of the Province of Quebec", Department of Justice of Canada, accompanying the press release issued when Bill S-22 A First Act to harmonize federal law with the civil law of the Province of Quebec and to amend certain Acts in order to ensure that each language version takes into account the common law and the civil law, was tabled on May 11, 2000.

On the one hand, it can dissociate itself from provincial private law and, under its accessory or ancillary powers allocated under the C.A. 1867, establish its own rule by assigning a specific meaning to the private law expression it uses in federal legislation. Consequently, the reader has to abide by to the definition given by Parliament in interpreting the private law concept. This is the case, for example, when the Income Tax Act[viii] defines private law concepts such as "spouse", "disposition" and "child".

On the other hand, if the federal legislator is silent on the meaning to be given to a private law term used in federal legislation, which is generally the case, it is necessary to rely on provincial private law (complementarity). Where federal legislation is applied in the province of Quebec, it is Quebec civil law which should be referred to, whereas in the rest of Canada it should be common law. In such cases, provincial private law is applied on a suppletive basis to federal legislation and provides the backdrop or legal infrastructure. For example, when the I.T.A. uses terms like mortgage, trust, contract and ownership, it is usually necessary to refer to provincial law for their interpretation.

How can a mere handful of fundamental concepts give rise to harmonization problems? As mentioned earlier, legislation emanating from the federal Parliament uses private law concepts on a regular basis. Yet, in many respects, there are differences between Quebec private law and the other Canadian provinces' private law. Consequently, for all Canadians to have access to federal legislation that better reflects their private law system, the federal legislator should systematically use terminology and concepts that are compatible with the two Canadian legal systems in both official languages.

However, this is not always the case. Federal legislation, often of common law inspiration, does not always adequately reflect Quebec civil law. And even where federal legislation uses civil law terminology, it sometimes proves obsolete since the coming into force of the Civil Code of Québec[ix] in 1994, which renewed some Quebec civil law terminology. Therefore federal tax law and Quebec civil law need to be better harmonized.

2.  General aspects of harmonization

2.1. Historical and legal background of Canadian bijuralism

Bijuralism, in the Canadian context, is the coexistence of two major contemporary legal traditions, namely civil law and common law. We recall that, after the 1760 conquest, common law and equity had been introduced throughout Canada under The Royal Proclamation, 1763. Nevertheless, the Quebec Act, 1774 entrenched the authority of French laws in "Nouvelle France" in matters of property and civil rights, while upholding the British law in criminal and penal matters.[x] The public law applicable in Quebec thus remained British.[xi] Since then, the private law of the province of Quebec has been civil law, while in the other provinces the common law applies. The Quebec Act, 1774 marks the beginning of Canadian bijuralism.

In 1867, Canadian bijuralism took constitutional value after it became indirectly enshrined in the Canadian constitution. By vesting the provinces with authority on issues pertaining to property and civil rights, the C.A 1867 confirmed Quebec's right to keep its civil law of French origin and that of the other provinces to keep their common law regime of British origin.

Since then, when the federal government passes legislation that falls within the ambit of the subjects mentionned in section 91 C.A. 1867, such as, for example, taxation (91(3) C.A. 1867), it refers to private law concepts that are governed by provincial authority in accordance with subsection 92(13) C.A. 1867. The provincial private law is complementarly to the federal legislation in such cases. On the other hand, the federal Parliament also has the constitutional authority to enact rules that are accessory or ancillary to one of its powers governed by section 91 C.A. 1867.  The federal legislator typically takes this course to ensure consistency on the national level in the application of an act. Such rules dissociate provincial private law and federal legislation.

The century old coexistence of public federal law and the civil law of the province of Quebec accounts for the great interest the federal government takes in the reform of the civil law. As early as 1993, the Department adopted the Enforcement and Compliance Policy of the Civil Code of Québec To the Federal Public Administration,[xii] which recognizes the interdependence between federal law and civil law as well as the need to adapt federal legislation to the new C.C.Q.  The Department has examined the impact, on federal legislation, of the coming into force of the new C.C.Q. "Comparisons of the two official language versions of federal statutes revealed that civil law concepts were not adequately represented in English and that common law terms were not always correctly rendered in French".[xiii]

The year 1994 was marked by the coming into force of the C.C.Q. which resulted in major legal reform in Quebec in terms of the terminology used as well as the number of its institutions, such as sureties and trusts.

In June 1995, the Department of Justice Canada adopted the Policy on Legislative Bijuralism, recognizing that it is imperative that all four Canadian audiences (francophone civil lawyers, common law francophones, anglophone civil lawyers and common law anglophones) for whom the federal laws and regulations are intended, should be able, on the one hand, to read documents in the official language of their choice and, on the other hand, to find therein a terminology and wording that respects the concepts, notions and institutions specific to the legal system (civil law or common law) in force in their province or territory.

In the wake of the 1995 events, one must also take note of the Canadian government's resolution recognizing, among other things, that the French language and the civil law tradition are part of Quebec's distinctiveness.[xiv]

On June 12, 1998, the Civil Code Section of the Department of Justice tabled a first Bill (C-50) in the House of Commons, which however was to die on the Order Paper in autumn 1999. This first Bill providing for the harmonization of federal legislation with Quebec civil law contained amendments to the Interpretation Act[xv], provisions relating to marriage (consent, age requirement and cases where it is forbidden to contract a new marriage) applicable only in the province of Quebec, and repealed the pre-confederation provisions of the Civil Code of Lower-Canada (1866) coming within the authority of the federal government. The Federal Real Property and Federal Immovable Act, the Bankruptcy and Insolvency Act, the Government Civil Liability Act and Administrative Litigation as well as various other acts were reviewed at that time.

On May 11, 2000, a new harmonization Bill (S-22), entitled Bill n^o 1, A First Act to harmonize federal law with the civil law of the Province of Quebec and to amend certain Acts in order to ensure that each language version takes into account the common law and the civil law, was introduced in the Senate. This Bill had a wider scope than Bill C-50, although building on its content with certain additions and corrections.[xvi] Bills C-50 and S-22 propose additions to the federal Interpretation Act, i.e. the new sections 8.1 and 8.2, which officially enshrine the rule of complementarity of provincial private law and federal law:

Section 8.1 "Both the common law and the civil law are equally authoritative and recognized sources of the law of property and civil rights in Canada and, unless otherwise provided by law, if in interpreting an enactment it is necessary to refer to a province's rules, principles or concepts forming part of the law of property and civil rights, reference must be made to the rules, principles and concepts in force in the province at the time the enactment is being applied."

Section 8.2 "Unless otherwise provided by law, when an enactment contains both civil law and common law terminology, or terminology that has a different meaning in the civil law and the common law, the civil law terminology or meaning is to be adopted in the Province of Quebec and the common law terminology or meaning is to be adopted in the other provinces."

These provisions "constitute the cornerstone of the interpretation of Canadian bijuralism".[xvii] Thus, section 8.1 states that civil law and common law are equally authoritative in matters of property and civil rights in Canada, a premise of Canadian bijuralism, in addition to reminding the reader that civil law should be suppletive in applying an enactment in Quebec. We note that the rule specifies that private law in its entirety, including provincial statutory law, is used as a backdrop.

In addition to the principle of complementarity, these new provisions establish other major interpretation rules, especially in the context of tax law. On the one hand, section 8.1 gives an ambulatory character to provincial private law terms used in federal acts. For example, while the I.T.A. uses the term privilege and makes no reference to the C.C.Q.'s new terminology the reader must update the terminology used and replace the term "privilege" by "priority" or "legal hypothec" as the case may be. This rule does not, however, allow the correction of harmonization problems such as unijuralism or semi-bijuralism.

On the other hand, section 8.2 of the Interpretation Act mentions that where a provision uses civil law as well as common law terms, the former will be applicable in Quebec and the latter in the other provinces. "The redrafting of certain federal enactments being one of the harmonization tools chosen by the Civil Code Section (…)", section 8.2 was added "so that the redrafting process does not give rise to any ambiguity with regard to the goal" pursued.[xviii] Thus, a British Columbia taxpayer who comes across the term "immovable" in the I.T.A., could not assume, based on the dictionary definition, that the legislator meant to refer to a new concept which might entitle him, among other things, to claim a capital cost allowance on property located in British Columbia. "Immovable", a civil law term, would apply only to Quebec taxpayers if it were to be used in the I.T.A.[xix]

2.2. Certain tax cases involving the concepts of complementarity and uniformity 

In the context of the application of Canadian tax laws, the courts generally recognize the principle of complementarity of provincial private law whenever a private law concept is not defined in tax legislation. On the other hand, even where such private law concepts are not defined, certain decisions recommend uniform application of the federal tax legislation across Canada thereby disregarding provincial private law. There is a cleavage between these two major trends, and case law on this issue does not always allow the identification of clear rules.

A brief review of a number of cases will help identify the issues involved in the process of harmonization of federal tax legislation.

2.2.1. Examples of cases where complementarity between provincial private law and federal tax law was recognized

Unless otherwise provided, one must usually refer to the law of the different provinces to interpret a private law concept used in federal statutes. This rule was commented upon in the following terms by professors Jean-Maurice Brisson and André Morel, in a tax law context:

"The most persuasive example of this is undeniably the Income Tax Act (and tax legislation in general).  One is even tempted to say that the Income Tax Act is superimposed on juridical acts subject to the civil law in virtually all of its provisions, so that consequences suitably adapted to its purpose may be drawn from those transactions.

(…)

It can be concluded, therefore, that the Income Tax Act, a public law statute par excellence, is in principle ineffective without indirectly referring to the civil law.  If, for example, the Act were to provide "no special definition of the word 'sale' or any special meaning… one must consider that word in the light of the law of the Province of Quebec as applied to the relationship created by the agreement."[xx]

Professors Morel and Brisson add:

"The same is true with respect to the process of compulsory execution of the federal government's tax claims, which necessarily presupposes that one resort indirectly to the Civil Code in determining the respective rights of the parties in seized property."[xxi]

The principle of complementarity of federal and provincial legislation has often been articulated by Canadian courts. The following excerpt from Justice Décary's decision,[xxii] dealing with the complementarity relation between fiscal legislation and provincial law, is a landmark in judicial history:

"In my opinion fiscal law is an accessory system, which applies only to the effects produced by contracts.  Once the nature of the contracts is determined by the civil law, the Income Tax Act comes into effect, but only then, to place levy.  Application of the Income Tax Act is subject to a civil determination, whether such a determination be according to civil or common law.  There is no need, in deciding as to the nature of the contracts, to have recourse to the theory popular in fiscal law of form and substance, if the private law of the place where the contract was concluded, which is the Civil Code in the case at bar, contains provisions the effect of which is comparable to that theory."[xxiii]

Justice Addy of the Federal Court, Trial Division applied the rule in Olympia and York Developments Ltd. v. Q.[xxiv] The Court had to determine whether a property had been sold and, if not, whether the transactions had resulted in a "disposition" within the meaning of tax law. The Honourable Justice Addy began by stating that:

"It is evident that the rights of the parties to the contract and all matters governing various agreements and legal relations arising from the actions of the parties to those agreements must be determined in accordance with the law of the Province of Quebec.

The rights of the parties arise out of the agreement filed as Exhibit 1 and full consideration must be given to its terms.  Since there is no special definition of the word «sale» or any special meaning to be attached to it in the Income Tax Act, one must consider that word in the light of the law of the Province of Quebec as applied to the relationship created by the agreement (Exhibit 1)."[xxv]

Further, in dismissing the common law rules that had been submitted to him to define the concept of sale, he adds:

"It now remains to be considered whether, in the light of these findings, a sale has taken place according to the laws of the Province of Quebec.

I have considered without applying them the following cases : Cornwall v. Henson ((1899) 2 Ch. 710); Trinidad Lake Asphalt Operating Company, Limited v. Commissioners of Income Tax for Trinidad and Tobago ((1945) H. of L. A.C. 1); Buchanan v. Oliver Plumbing & Heating Ltd. ((1959) O.R. (C.A.) 238); together with the passages in 19 C.E.D., Chapter IX and Halsbury's, Third Edition, Volume 34 referred to by counsel.  These, of course, constitute exclusively English common law jurisprudence on the subject.  The law of real property is one of the areas where common law and civil law principle's are most likely to be at variance or at least to flow from different fundamental premises.  At common law, the nature of the relationship existing between a vendor and purchaser of real estate under given circumstances is governed to a large extent by the distinctions between legal and equitable ownerships, estates and remedies and by the principles applicable to various categories of trusts and trustees.  None of these concepts even exist in civil law.  To seek by way of common law jurisprudence to reach a solution to the present issue would be to venture out on a perilous journey over rocky and tortuous roads, fraught with pitfalls, which would lead to a mere cul-de-sac, if one were fortunate."[xxvi]

The principle of complementarity of provincial private law had already been spelled-out in 1960 in Perron v. M.N.R.,[xxvii] a case involving the concept of "disposition" (before the definition was introduced in the legislation). The judge summarizes the case law and doctrine in support of the complementarity principle, which he considered applied:

"In the case of His Majesty the King and Dominion Engineering Company Limited (1944) S.C.R. 371, 376 (2 D.T.C. 674), the Honourable Mr. Justice Rand expressed the following opinion:

[…]  If income tax is a creation of the Act which imposes it, that Act must apply within the framework of the civil laws governing legal relationships between individuals.  The tax is grafted, as it were, on the legal tree which covers with its shadow the rights and obligations arising from the contracts.  Simon's Income Tax, Vol. 1, p. 48, No. 62, states: 

"Taxation law does not exist in vacuo.  It has regard to situations and transactions the exact force and effect of which are determined and regulated by the general law.  It is true that for particular purposes a taxing statute may build on a basis of hypothesis, as in the case of those sections of the Income Tax Act, 1952, which deem income arising under a settlement (as specially defined) to be the income of the settler notwithstanding express provision to the contrary of the governing document.  This artificial treatment is, of course, confined by the legislature to the purposes of the Income Tax Act; the general law is otherwise in full force, so that even in the case of these sections it is important in the first place to construe the settlement according to the correct legal principles in order to see whether and in what manner the sections apply.

In other cases, it is vital that the true legal position of the taxpayer in relation to a transaction giving rise to an item of apparent income should be appreciated before any attempt is made to apply the taxing Act to the case.

                That opinion reflects the obiter dictum of the Honourable Mr. Justice Williams in Tweddle v. Federal Commission of Tax 7 A.T.D. 186, 190:

It is not suggested that it is the function of income tax Acts or of those who administer them to dictate to taxpayers in what business they shall engage or how to run their business profitably or economically. The Act must operate upon the results of a taxpayer's activities as it finds them.

It should be remembered that the legal relationships of the parties to a contract and the consequences of that contract must be respected by the persons responsible for administering the Income Tax Act. What must be taken into account above all are the real nature of the contracts and their effects on the contracting parties and on third parties, with respect to the general law of the place - common law, or Quebec Civil Law, as the case may be."[xxviii]

In many other tax cases, the courts have also applied provincial private law despite the balkanization that such an approach could lead to. Some Supreme Court of Canada decisions highlight this trend. The first example that comes to mind is the Continental Bank Leasing Corporation v. Q.[xxix] case where the law of the province of Ontario was applied in a debate on the existence of a partnership. One may also recall the case of Sura v. Q.[xxx] where the Supreme Court referred to the provision of the Civil Code of Lower Canada on the regime of community of property in a dispute on income-splitting between spouses.

Case law also provides many examples of the application of provincial private law in matters involving the transfer of property. In Brouillette v. Q.,[xxxi] a case on the tax consequences of a transfer of shares to a minor, the Federal Court of Appeal relied on the civil law applicable at the time of the transaction. The transfer to a trust settled for a minor was deemed to have been effected on the child's behalf within the meaning of subsection 73(5) I.T.A., as it read in 1987. The court's comments on the federal legislator's role deserve to be underscored:

" Parliament is deemed to know the existing law. In 1987 it must have known, that at least in Quebec, a transfer of property to a minor child could be made by trust pursuant to art. 981a. of the Civil Code of Lower Canada. As s. 73(5) applied to both minor children and children of legal age, Parliament had no need to state that if minor children were in question the transfer should be made according to the formalities applicable to a transfer to a minor child. (...) Parliament wished to expressly ensure that a transfer for the benefit of a child who was probably a minor in all provincial jurisdictions would not be threatened by the differences in form which might exist under applicable provincial legislation. ". [xxxii]

In the same vein, in Hillis v. Q.[xxxiii]the Federal Court of Appeal applied the law of the province of Saskatchewan to determine if property had irrevocably vested within the meaning of subsection 70(6) I.T.A. To round off on this issue, one may refer to Furfaro-Siconolfi v. Q.,[xxxiv] where the provisions of the Civil Code of Lower Canada were used to determine the moment a transfer between spouses had occurred.

2.2.2 Examples of cases where uniformity prevailed

Professors Jean-Maurice Brisson and André Morel appropriately sum up the other trend that exists in tax cases:

"In opposition to the commonly held view that the complementarity of provincial private law with federal private law legislation is accepted failing any provision to the contrary, it is sometimes suggested that federal legislation should be applied in the same way everywhere, in the interests of uniformity.

[…]

For the same reason it has sometimes been considered appropriate to interpret the Income Tax Act as overriding the civil law, using a common law rationale, to avoid giving the Act a broader scope within Quebec than it would have in some other province."[xxxv]

In Vancouver Society of Immigrant and Visible Minority Women v. M.N.R.,[xxxvi] Justice Gonthier asks whether provincial law is suppletive to the I.T.A. with regards to the concept of "charitable organisation":

"It is well known that the ITA does not define "charity" or "charitable", other than to define "charity" to mean "a charitable organization or charitable foundation", which are themselves defined terms. Instead, as the Federal Court of Appeal stated in Positive Action Against Pornography v. M.N.R., [1988] 2 F.C. 340, at p. 347, " the Act appears clearly to envisage a resort to the common law for a definition of "charity" in its legal sense as well as for the principles that should guide us in applying that definition".

[...]

Parliament has, in effect, incorporated the common law definition of charity into the ITA, and in doing so, has implicitly accepted that the courts have a continuing role to rationalize and update that definition to keep it in tune with social and economic developments. I note in passing that the definition of "charity" or "charitable" under the ITA may not accord precisely with the way those terms are understood in the common law provinces, due to judicial decisions and provincial statutory incursions into the common law. The ITA's conception of charity, by contrast, is uniform federal law across the country."[xxxvii]

In another case dealing with donations and tax law,[xxxviii] the civil law of the province of Quebec had been set aside in favor of uniform application of federal law. The Court had to decide if a conveyance between a father and his son constituted a donation in respect of the difference between the fair market value and the purchase price of the property. While it is probable that the benefit conferred constituted a donation under Quebec law, the Court decided that there was no donation within the meaning of the I.T.A., since the act had to be interpreted uniformly across Canada:

"In the case in point, we are in presence of a tax law which should be applied in the same manner throughout Canada, and as former Chief Judge Jackett noted, when several provisions of the Income Tax Act are involved, even where a sale at an under-stated price is tantamount to an indirect donation for the purposes of section 712 of the Civil Code of Lower Canada, this does not mean that the application of section 111 of the Income Tax Act should be extended to cover a dispute in the province of Quebec beyond what would be the case in another province."[xxxix]

In Marcoux v. Canada,[xl] against a garnishment made under subsection 224(1) of the I.T.A., the plaintiff argued that her supplementary retirement benefits could not be seized because of the provisions of the Civil Code and the Code of Civil Procedure[xli] of the province of Quebec. The Court refused to apply the civil law rules to procedures initiated under subsection 224(1):

"But there is more. The courts have ruled many times on the self-sufficiency of tax laws, including the Income Tax Act, characterizing them as a "complete code". In the interests of the uniform application of this federal statute and the equality of taxpayers before the taxation authorities, I am of the opinion that Parliament, under subsection 224(1) of the Income Tax Act, has created a unique mechanism that gives its provision a genuine self-sufficiency in relation to private law."[xlii]

Justice Denault of the Federal Court had used a similar argument in a decision involving the Ministère du Revenu du Québec and dealing with the application and enforcement of the Excise Tax Act:

"The Excise Tax Act, just like the Income Tax Act, R.S.C.. 1985 (5th supp.) ch. 2, in fact contains a comprehensive code for tax collection under which, upon receipt of a notice of assessment, a taxpayer may file an objection notice and subsequently appeal before the Tax Court of Canada. It is therefore not within the competence of this Court to rule on the assessment and expense amounts which a taxpayer may claim to be entitled to."[xliii]

The law of the province of Quebec is not the only one to be set aside in the name of uniformity. In Markevich v. Q.,[xliv] the law of British Columbia was discarded:

"However, in my view even though the liability of the taxpayer to pay money due under the Income Tax Act is a debt to the Crown, and debt is a common law concept, there is no reason of policy for subjecting its enforceability to provincial law when this will detract from the uniform application of the statute without any justification.  Indeed, if the law of British Columbia applies to the debt in question here it would be extinguished altogether.

Moreover, I note that in Vancouver Society of Immigrant and Visible Minority Women v. Canada (Minister of National Revenue) (S.C.C. ; January 28, 1999) (since reported, 99 D.T.C. 5034), Gonthier J. said that, even though the Income Tax Act did not define the term "charitable", but left it to the courts to elaborate, the statute's conception of charity is uniform federal law across the country and does not accord precisely with the way these terms are understood in the common law provinces, due to judicial decisions and provincial statutory incursions into the common law.

In my opinion, therefore, the Income Tax Act should be interpreted as creating a federal cause of action in the event that a taxpayer fails to pay tax duly assessed."[xlv]

The majority decision of the Federal Court of Appeal in Construction Bérou Inc. v. Q.[xlvi]highlights that courts are often torn between the recognition of private provincial law and the uniform application of federal law. The taxpayer had financed some trucks by way of leasing agreements. For purposes of capital cost allowance and investment tax credit, the company considered it owned the trucks since it had "acquired" these assets within the meaning of common law. This position was challenged by the Department on the ground that in civil law the holder of the title-deed is the sole owner, consequently, the lessor (financial institution) was the owner and only one entitled to claim the capital cost allowance and investment tax credit. The appellant argued that the law should apply uniformly and claimed the same tax benefits it would have been entitled to under common law because it had beneficial ownership of the trucks.

Justices Létourneau and Desjardins interpreted the provisions of the law governing leases in such a way as to ensure a treatment for Quebec taxpayers equal to that applicable in the common law provinces. To achieve this outcome, the two Justices equated the civil law lessee/lessor situation with that of "legal/beneficial owner" under the common law.  Based on Olympia and York Developments Ltd.[xlvii] and Wardean Drilling Limited,[xlviii] the Justices adapted the common law principles so as to produce, in civil law, a result similar to that obtained in the other Canadian provinces. Justice Létourneau, in Bérou, explains why under the circumstances the uniformity of the tax law prevails over compliance with the civil law:

"In short, according to these two cases, disposition or acquisition of property for purposes of the capital cost allowance exists under the Act when the normal incidents of title such as possession, use and risk are transferred. I agree with this legal interpretation given for tax purposes to the word "acquired" contained in the definition of "depreciable property". For practical purposes this interpretation has the merit of recognizing, for tax legislation that applies throughout Canada, a business practice that has no boundaries and of avoiding the danger of becoming to embroiled in unnecessary, sectoral and above all sterile and inequitable legalism at a time when the trend in the civil law is to approximate more closely to the common law.  In addition, it is significant that Parliament, which annually amends the Act inter alia to alter legislative provisions when they are so interpreted that they do not meet the objectives sought, has not thought it appropriate to overturn this thirty-year-old interpretation.  Further, this interpretation is consistent with the legislative intent stated in subsection 248(3) of the Act, which, as I have already mentioned, is intended to treat beneficial ownership of property in the same way as various forms of ownership recognized in the civil law of Quebec."[xlix]

Justice Noël, for his part, rejected this interpretation. In his dissent and because of the civil law of the province of Quebec he is unable, despite the unfairness of the situation for Quebec taxpayers, to conclude the company had "acquired" the trucks.

Although the decisions mentionned above are fairly recent, uniformity has been used, in older cases as a motive to set aside the private law of the provinces. For example, in 1971, in the name of equity and uniform application of tax legislation, emphyteusis was assimilated to a "leasehold interest" in Rosenstone v. M.N.R.:[l]

"To be equitable, an income tax law must apply in general to the entire nation.  In the present case it would not be fair because taxpayers in the Province of Quebec would enjoy an advantage that taxpayers in other provinces would not have.  I feel it is clear that the legislator intended to include all leases, even emphyteusis, which is a lease by which "the proprietor of an immovable conveys it for a time to another, the lessee subjecting himself to make improvements, to pay the lessor an annual rent, and to such other charges as may be agreed upon" (Civil Code, Article 567)."[li]

2.3 Issues Raised by the Harmonization of Tax Laws

These few cases highlight the difficult choices courts must make between the recognition of the provinces' private law and the uniform application of tax legislation. In harmonizing federal tax laws, three objectives are being pursued: uniformity of treatment, respect of the civil law of the province of Quebec and reduction of the number of cases being litigated. The legal harmonizor will seek to strike the delicate balance between equity (same tax treatment regardless of the legal system applicable) and respect of the two major legal systems, i.e. the civil law and the common law:

"Our objective is legal duality, not necessarily to achieve one rule to be applied uniformly across Canada; this requires respect for the character and uniqueness of the concepts and principles of each legal system. The fact that provincial legislatures may pursue distinctive legal policies which might each be different as well as different from those of Parliament, is a principal justification for federalism.

[…] 

If uniformity was our goal, what would be the purpose of our federal system and bijural culture? The need to recognize diversity should not, however, inhibit the need for coherence and the need to reduce conceptual and linguistic incongruence."[lii] 

It is true that bijuralism and diversity go hand in hand. However, is it legitimate to believe, and may we extrapolate from the Justice Décary's statement in Brouillette, that it is incumbent on the legislator to anticipate and adjust, by using explicit rules, the discrepancies of treatment resulting from the differences in the legal regimes of the provinces? In the absence of specific rules bypassing provincial law and creating a uniform federal law, the law of each of the provinces should thus apply on a suppletive basis to complement federal legislation when it refers to private law notions or concepts.

3. Legislative process and methodology

On the same basis as most other federal enactments, tax legislation needs to be actualized as to integrate the new terminology, new concepts and new institutions of the C.C.Q.. This process of terminological modernization has also provided an opportunity to undertake in-depth revision of the legislation so as to make it bijural. To that end, the English civil law and French common law terminology will be added wherever it is absent or deficient. In this Part, we shall take a look at how the harmonization process will operate for tax legislation.

3.1 Overall harmonization process

The harmonization process of tax legislation is different, in two respects, from that which led to the tabling of Bills C-50 and S-22. First, with regard to these two bills, it is the Minister of Justice who was in charge of the legislative amendments throughout the parliamentary process. The harmonization adjustments to tax laws will be incorporated in the bills amending these laws and responsibility during the parliamentary process will rest with the Department of Finance. This process has the benefit of being expeditious, the downside being a limited visibility of the harmonization changes.

Bill C-43[liii] tabled in the House of Commons on September 20, 2000, contains the first legislative changes directly resulting from the implementation of the Policy on Legislative Bijuralism:

Ø        addition of "liquidateur de la succession"/"liquidator of the succession"[liv]in both linguistic versions.[lv]

Ø        substitution of "propriété conjointe"/"joint ownership" for "copropriété"/"co-ownership"[lvi]in both linguistic versions;[lvii]

Ø        addition of hypothec[lviii] in the English version.[lix]

Bill C-43 also contains amendments to legislative provisions relating to trusts and the definition of "disposition". These amendments refer to the concept of "beneficial ownership" which has no equivalent in civil law. Why were these provisions not harmonized in Bill C-43? Because they deal with complex notions for which there are no equivalents in civil law; of course they ultimately will be harmonized, but in-depth research is required before any amendments are proposed. The harmonization problems for which solutions have been identified will be corrected in due course as new legislative proposals are introduced. These changes are clearly identified in the explanatory notes, as was the case for the harmonization changes made in the Notice of Ways and Means Motion of June 5^th, 2000,[lx] now Bill C-43.

The second aspect which differentiates the harmonization process in fiscal matters from that which has prevailed for Bills C-50 and S-22 is that, in the tax area, comprehensive review of an act such as the I.T.A. is not possible because of the significant number of new provisions adopted annually. The approach proposed for tax legislation involves reviewing the new legislation, starting by Budget 2000, with correlative changes to existing statutes being made progressively.

3.2 Harmonization methodology for tax legislation

3.2.1 Identification of points of contact

The first step consists in identifying points of contact with the private law. The expression "point of contact" refers private law terms or expressions from private law that are problematic in the context of Canadian bijuralism. For example, when the terms used in an enactment only refer to common law concepts or notions, or have become obsolete since the coming into force of the C.C.Q., they become "points of contact". In order to identify these points of contact, a list of problematic terms or expressions was drawn-up, based on the work that had led to the tabling of Bills C-50 and S-22, the work undertaken by the Quebec government in view of tabling An Act to Harmonize Public Statutes with the Civil Code,[lxi] databases as well as common law and civil law dictionaries. The list of points of contact, which is updated on an ongoing basis, is a tool for electronic tracking of potential problems.

Once the points of contact have been identified, the harmonizor then proceeds to track cases of complementarity or dissociation. An example of complementarity is the use of private law terms such as "fiducie" (trust) in tax legislation. When a relationship of complementarity is established, the harmonizor may move to the next step which is characterization of the problem. At the opposite end, in presence of a dissociative relation, which occurs when the federal law sets up its own private law rules, there is no harmonization of the provisions in which these concepts are used. Thus, the definition of "disposition" ("disposition") in the I.T.A. or the definition of "conjoint" ("spouse") provide examples of dissociation, due to the fact that the legislator preferred a uniform federal rule throughout Canada over the law of the provinces. It is worth noting, however, that even the definitions that are specific to federal law often are not comprehensive and may contain private law terms that require a reference to the private law of the provinces.

Subsequently, the legal harmonizor characterizes the harmonization problem and proposes one or more solutions. Finally, recommendations are submitted to the Department of Finance for incorporation in legislative provisions. 

3.2.2. Characterization of harmonization problems

Let us now move on to the various types of harmonization problems that are found in Canadian tax laws. They derive partly from the legislative drafting policies that prevailed in the past, as well as the coming into force of the C.C.Q. in 1994, which changed the terminology of Quebec civil law.

Despite the coexistence of the two major legal systems, there was a time when federal legislation was drafted in English and subsequently translated into French. Enactments sometimes only referred to common law terminology in both linguistic versions, occasionally overlooking the anglophone and francophone civil law audiences. This drafting policy led to unijural problems in federal legislation.[lxii]

This situation has given rise to a number of adjustments, summarized below:

"In response to a report of the Commissioner of Official Languages concerning the process of establishing the French version of statutes and regulations, the Department created the Garon committee, in 1977, and the Desjardins committee, in 1978, to examine the question and respond to the Commissioner's recommendations.

A parade of administrative measures followed the report of each of these committees, inter alia the creation of the position of francophone Chief Legislative Counsel responsible for the quality of the French version of legislation.  No concrete action has been taken in respect of the examination and drafting of regulations.

In 1980 Cabinet made a decision on this subject, to recognize the policy of the Department of Justice in respect of establishing the French version of statutes and to invite the other departments to participate."[lxiii]

A first step towards legislative bijuralism was made at that time. An agreement on legislative drafting was adopted; from then on the French version of the statute was not only to be a translation of the English version drafted on the basis of the common law, but, to the extent possible, was to refer to civil law concepts, institutions and terminology. Former paragraph 8(c) of the Official Languages Act,[lxiv] repealed in 1988, testifies to the drafting policy of that era. The paragraph, dealing with the interpretation of federal enactments, recommended cross-reading of the statute whenever, in the French version, there was reference to the civil law and the common law, in the English version. The paragraph seemed to give a blessing to the drafting convention and forced the anglophone civil law expert and the francophone common law practitioner to consult the provision in the other official language so as to understand the meaning and identify the concepts, terms or institutions to which the legislator was referring. This drafting convention resulted in semi-bijural problems.[lxv]

Before explaining each of these types of harmonization problems in federal tax legislation, it should be noted that with the new approach to legislative drafting based on Canadian bijuralism and the proposals for additions to the Interpretation Act (new sections 8.1 and 8.2), harmonization problems should be less frequent.

3.2.2.1.        Unijuralism

Unijuralism occurs when a legislative provision uses terminology that only has meaning for one legal system, in both the English and French versions. Thus, for example, provisions referring to the concepts of "leasehold interest", "licence" or "beneficial ownership", have clearly been drafted from a common law standpoint. These concepts, translated respectively by "tenure à bail", "permis" and "propriété effective" are not part of Quebec civil law. Paragraph 248(4) I.T.A. is a provision which contains the unijural expression "leasehold interest"("tenure à bail") in addition to certain other unijural and semi-bijural expressions.[lxvi] The said provision reads as follows:

248(4) Dans la présente loi, sont compris dans les droits sur des biens immeubles les tenures à bail mais non les droits servant de garantie seulement et découlant d'une hypothèque, d'une convention de vente ou d'un titre semblable.

248(4) In this Act, an interest in real property includes a leasehold interest in real property but does not include an interest as security only derived by virtue of a mortgage, agreement for sale or similar obligation.

For the harmonizor, this subsection raises several issues and comments. What is the equivalent of "leasehold interest" in civil law?[lxvii] The anglophone common law practitioner understands the concept of "interest in real property"; to speak to the francophone common law community, should the provision refer to the concept of "intérêt dans un bien réel" (interest in real property)?

3.2.2.2        Semi-bijuralism

A semi-bijuralism arises when a provision uses terminology specific to the common law system in the English version, and civil law terminology in the French version. Thus, while respecting bilingualism, the provision does not respect bijuralism. On the practical level, this drafting technique takes into account the common law anglophone and the civil law francophone audiences, but does not cover the common law francophone and anglophone civil law audiences. This does not mean, however, that these provisions are, inapplicable since it is possible to interpret them by referring to both language versions.

The I.T.A. abounds in semi-bijural provisions such as subsection 85(1.1), cited below:

85(1.1)  Pour l'application du paragraphe (1), «bien admissible» s'entend : a) d'une immobilisation - à l'exception d'un bien immeuble, d'un droit sur un tel bien, ou d'une option s'y rapportant, dont une personne non-résidente est propriétaire (…)

85(1.1)For the purposes of subsection  (1), « eligible property»  means : (a) a capital property (other than real property, or an interest in or an option in respect of real property, owned by a non-resident person) (…)

As drafted, the provision does not reflect both major legal systems in each linguistic versions. To correct this, it might be appropriate to ensure that the provision contains a direct or indirect reference to the common law concepts of "real property" and "biens réels", as well as to the civil law ones of "immeubles" and "immovables". These concepts are akin to each other and describe a similar reality, although not being equivalent in every respect since they are of different historical origins.

Clause 108(2)b)(iii)(D) of the I.T.A., as it read when the Revised Legislative Proposals on Trusts[lxviii]were tabled on December 17, 1999, was drafted in semi-bijural language.

108(2)b)(iii)(D) L.I.R. «(D) obligations, hypothèques, billets et autres titres semblables (…)».

108(2)(b)(iii)(D) I.TA. "(D) bonds, debentures, mortgages, notes and other similar obligations (…)".

The English version needed to be adjusted,[lxix] by referring to the civil law concept of "hypothec", which is the civil law equivalent of the term "mortgage".

3.2.2.3 Apparent bijuralism 

An apparent bijuralism "arises when a legislative provision contains civil law terms that are not inappropriate in the context for any of the following reasons: obsolete terminology, incompatibility with a new civil law principle, disparity in content or inadequate terminology".[lxx]

1. Terminological obsolescence

The reform of the C.C.Q. has brought with it many changes in the civil expert's lexicon. Some of them reflect the commitment of the Quebec legislator to modernize legal language while preserving the former law; others relate to specific substantive rules and translate into elimination or the creation of new concepts. Consequently, this reform has resulted, in certain cases, in disparity between the terminology used by the federal legislator, when his intent was to refer to civil law concepts, and that of the new C.C.Q. Having said this, it is important to ensure that terminological changes will be reflected in both linguistic versions of the federal statute. Let us consider the following example, namely subsection 104(1) I.T.A., as it reads in the Revised Legislative Proposals on Trusts.[lxxi]

104. (1) Dans la présente loi, la mention d'une fiducie ou d'une succession (appelées «fiducie» à la présente sous-section) vaut également mention, sauf indication contraire du contexte, du fiduciaire, de l'exécuteur testamentaire, de l'administrateur successoral, de l'héritier ou d'un autre représentant légal ayant la propriété ou le contrôle des biens de la fiducie.

104. (1) In this Act, a reference to a trust or estate (in this subdivision referred to as a « trust »)  shall, unless the context otherwise requires, be read to include a reference to the trustee, executor, administrator, heir or other legal representative having ownership or control of the trust property (…).

The expression "exécuteur testamentaire" was replaced in the new C.C.Q. by "liquidateur de succession" (liquidator of the succession). A pure and simple replacement of terms would not have respected the principles of the harmonization program, since the expressions "exécuteur testamentaire" and "executor" are still valid at common law. The harmonization solution which was preferred in Bill C-43 was to keep "exécuteur testamentaire" and add the new civil law expression "liquidateur de succession".

2.  Incompatibility with a new substantive rule

Certain provisions of the federal act, worded on the basis of the old code, sometimes use civil law concepts that are no longer current or have been replaced. Let us consider, for example, the definition of "garantie" provided in subsection 224(1.3) I.T.A.:

224(1.3)  «garantie »   Droit sur un bien  qui garantit  l'exécution d'une obligation, notamment un paiement.  Sont en particulier des garanties les droits nés ou découlant de débentures, hypothèques, privilèges, nantissements, sûretés, fiducies réputées ou réelles, cessions et charges, quelle qu'en soit la nature (…)

224(1.3) « security interest » means any interest in property that secures payment or performance of an obligation and includes an interest created by or arising out of a debenture, mortgage, lien, pledge, charge, deemed or actual trust, assignment or encumbrance of any kind (…)

The C.C.Q. "rather than merely restating the existing law of security, the new Code substantively reforms and revises this area of law".[lxxii] The term "privilèges" of the Civil Code of Lower Canada has been eliminated, changed to "priorités" or else replaced by "hypothèques légales". Before proceeding to harmonize this provision, many questions need to be addressed: should the word "privilège" in subsection 224(1.3) I.T.A. be replaced by "priorités", knowing that for the most part they are more a preferential ranking attributed to a creditor than an interest in the property? On the other hand, does the provision refer to a municipality's or school board's prior claim for property taxes now that they create real rights[lxxiii] (and therefore confer a right  to follow or "droit de suite", contrarily to the other "priorités")? Does the legislator refer rather to "hypothèques légales" already covered under the provision?

3.      Disparity in content or inadequate terminology

Finally, another harmonization problem may arise when a provision of a federal act uses, civil law terms but give them, in context, an inadequate meaning. Such inadequate use of civil law terms often creates a disparity in content between the two linguistic versions, in addition to being a possible source of ambiguity or confusion. The following example highlights the problem:

Catégorie 8 Annexe II R.I.R. c) un immeuble qui est un four, un réservoir ou une cuve, acquis aux fins de fabrication ou de transformation; d) un bâtiment ou une autre structure, acquis après le 19 février 1973, qui est conçu pour préserver le fourrage ensilé dans une ferme

Class 8 schedule II I.T.R (c) a building that is a kiln, tank or vat, acquired for the purpose of manufacturing or processing; (d) a building or other structure, acquired after February 19, 1973, that is designed for the purpose of preserving ensilage on a farm;

One may notice that the French translation of "building" in the I.T.A. is typically "bâtiment".[lxxiv] However, in some provisions the term "immeuble" is used indifferently as the equivalent of "building". In civil law, the concept of "immeuble" includes the land, buildings and permanent structures on the premises, while the word "bâtiment" refers to a specific building or construction erected on a piece of land.[lxxv] Consequently, the use of the civil law term "immeuble" might be reviewed in the context of these provisions.

3.2.3. Harmonization solutions

There are various approaches for correcting these harmonization problems. Four solutions likely to be used in tax legislation are presented below.

3.2.3.1 Double

This technique involves the use of common law and civil law terms in drafting a provision applicable in each of both major legal systems. The technique is especially useful when it is necessary to clearly delineate the application of the rule of law in Quebec and the rest of Canada. The double is said to be "simple" when the terms or concepts specific to each legal system are presented in succession, and to be with paragraphs  "avec alinéas" when the concepts particular to each legal system are presented in separate paragraphs.[lxxvi] It goes without saying that the double is not the best solution when a provision involves long recitals or when the legal text is already quite lengthy.

In Bill S-22, the double proved useful as a solution to the semi-bijuralism problem resulting from the use of the common law term "real property" in the English version and the civil law term "immeubles" in the French version. The same technique was applied to correct the semi-bijuralism problems arising from reference to the common law concepts of "personal property" and "tangible personal property" in the English version and the civil law ones of "meubles et meubles corporels" in the French version.

The following doubles were used in Bills C-50 and S-22 to solve the above-referenced semi-bijuralism problems found in many federal acts: 

Ø     "real property or immovables"/"immeubles ou biens réels";[lxxvii]

Ø     "personal property or movables"/"meubles ou biens personnels";[lxxviii]

Ø     "tangible personal or corporeal movable property"/"meubles corporels ou biens personnels corporels".[lxxix]

Considering the differences between civil law "immeubles" and common law "biens réels", those between "meubles" (civil law) and "biens personnels" (common law), as well as between the two legal systems with regards to the concept of "biens corporels", the use of these doubles in tax legislation is currently under consideration. Certain adjustments might be necessary in order to ensure some symmetry between these concepts so that the provisions in which they are used have a fairly uniform scope across the country.

Moreover, the drafting convention of these doubles, adopted for the purposes of Bills C-50 and S-22, is currently under review. It involves using, in the English version, the common law terms or expressions followed by civil law terms or expressions. The French version of the double is drafted in a reverse order, the civil law terms or expressions coming first, followed by the common law terms or expressions. For example, the French version might contain "immeuble ou bien réel", while in the English version the wording would be "real property or immovable". Since both linguistic versions are sometimes read together in interpreting a provision, inverting the presentation sequence of the concept might create confusion, all the more since, in tax legislation, the components of a recital are usually presented in the same order in the French and English versions. However, in so far as the legislation is harmonized and each version is complete, with due regard to the civil law and the common law, the importance of symmetry of the two versions will remain, but will be toned down.

The double "mortgage or hypothec", profusely found in Bill S-22,[lxxx] has been used in Bill C-43. As mentioned, only the English version was adjusted, "hypothèque" being the appropriate term in the civil law and the common law.

3.2.3.2 Neutral or generic term

This drafting technique involves using a neutral term which has no connotation in either of the two legal systems. As for the generic term, it subsumes under a single term various legal concepts which may nonetheless have their own characteristics.

For example, in the Revised Legislative Proposals Relating on Trusts,[lxxxi] paragraph 107.4(1)e) I.T.A. was drafted in unijural language. Indeed, the legislator used only common law terminology, namely the term "jointly owned" in the English version and "propriété conjointe" in the French version. The said provision read as follows:

107.4 (1) Pour l'application du présent article, «disposition admissible» s'entend d'une disposition de bien effectuée par une personne ou une société de personnes (appelées «cédant» au présent paragraphe) par suite du transfert du bien à une fiducie donnée, si les conditions suivantes sont réunies : e) à moins que le cédant ne soit une fiducie, aucune personne ou société de personnes (sauf le cédant ou, dans le cas d'une propriété conjointe du bien, chacun des co-cédants) n'a, immédiatement après la disposition, de droit absolu ou conditionnel à titre de bénéficiaire  (déterminé par rapport au paragraphe 104(1.1)) de la fiducie donnée;

107.4 (1) For the purpose of this section, a «qualifying disposition» of a property means a disposition of the property by a person or  partnership (in this subsection referred to as the «contributor») as a result of a transfer of the property to a particular trust where (e) unless the contributor is a trust, there is immediately after the disposition no absolute or contingent right of a person or partnership (other than the contributor or, where the property was jointly owned, each of the joint contributors) as a beneficiary (determined with reference to subsection 104(1.1)) under the particular trust;

 

In common law, the expression "joint ownership" may be used in a broad sense, to refer to the "tenancy in common" ("tenance commune") or the "joint tenancy" ("tenance ou propriété conjointe"). The term "tenancy in common" has a meaning similar to the civil law term "co-ownership"[lxxxii] whereas "joint-tenancy"or "joint ownership", an institution specific to the common law, is a form of co-ownership which includes a right of survivorship in favour of the other party.[lxxxiii] Did the legislator have in mind any form of joint ownership or co-ownership (within the meaning of the civil law and the common law) or did he specifically intend to refer to tenancy or joint ownership  which includes the right of survivorship?

Subsection 107.4(1) I.T.A. spells-out the requirements to be met for a rollover in the case of certain transfers by an individual to a trust, and paragraph 107.4(1)e) I.T.A., as proposed, lists the parties who may be beneficiaries under the trust. Subject to compliance with the other requirements in the case of a transfer to a trust by co-owners of a property that comes under joint ownership, notwithstanding the survivorship right, all the co-owners who have made the transfer may be beneficiaries under the trust. It follows that the legislator had in mind any form of co-ownership, joint ownership being only one of the intended forms among others.

In the light of the foregoing, the unijural problem was corrected by substituting neutral terms for the common law expressions. In English, "jointly owned" was replaced by "co-owned" and in French "propriété conjointe" by "copropriété", these two terms being equally appropriate in common law and civil law to refer to the ownership of a property by many persons. The provision once harmonized, as found in Bill C-43, reads as follows:[lxxxiv] 

107.4 (1) e) à moins que le cédant ne soit une fiducie, aucune personne ou société de personnes (sauf le cédant ou, dans le cas où le bien est détenu en copropriété, chacun des co-cédants) n'a, immédiatement après la disposition, de droit absolu ou conditionnel à titre de bénéficiaire  (déterminé par rapport au paragraphe 104(1.1)) de la fiducie donnée;

107.4(1) (e) unless the contributor is a trust, there is immediately after the disposition no absolute or contingent right of a person or partnership (other than the contributor or, where the property was co-owned, each of the joint contributors) as a beneficiary (determined with  reference to subsection 104(1.1)) under the particular trust;

3.2.3.3 New definition

This harmonization technique involves giving a term a meaning that is specific both to civil law and common law. The technique can already be found in tax legislation. The definition of the word "abandon"("release" or "surrender") provided in subsection 248(9) I.T.A., offers an example:

Les définitions qui suivent s'appliquent au paragraphe (8). «abandon». - «abandon» a) Abandon, au sens de release ou surrender en vertu du droit des autres provinces que le Québec, qui n'indique aucunement qui est en droit d'en profiter; b) donation entre vifs d'un droit sur la succession ou d'un bien de celle-ci, faite en vertu du droit de la province de Québec à la personne ou aux personnes qui auraient profité de la renonciation si le donateur avait renoncé à la succession sans le faire au profit de quelqu'un; l'abandon doit être fait dans un délai se terminant 36 mois après le décès du contribuable ou, si le représentant légal de celui-ci en fait la demande écrite au ministre dans ce délai, dans un délai plus long que le ministre considère raisonnable dans les circonstances.

In subsection (8), «release or surrender» means (a) a release or surrender made under the laws of a province (other than the Province of Quebec) that does not direct in any manner who is entitled to benefit therefrom, or (b) a gift inter vivos made under the laws of the Province of Quebec of an interest in, or right to property of, a succession that is made to the person or persons who would have benefited if the donor had made a renunciation of the succession that was not made in favour of any person, and that is made within the period ending 36 months after the death of the taxpayer or, where written application therefor has been made to the Minister by the taxpayer's legal representative within that period, within such longer period as the Minister considers reasonable in the circumstances.

Paragraph (a) of the definition only refers to common law concepts, while paragraph (b) only refers to the law of the province of Quebec. It involves a definition, not an asymmetric provision, since in addition to refering to the two legal systems the legislator assigns to it a specific meaning, by prescribing the time period (36 months) within which the release or surrender should take place to qualify as such under tax legislation.

3.2.3.4 Asymmetrical provision

This technique "consists in the drafting of specific provisions applicable to only one of the two systems because they refer to concepts or institutions that have no equivalent in the other system".[lxxxv] Subsection 248(3) I.T.A. provides an interesting example of an asymmetrical provision.[lxxxvi] The introductory paragraph specifically mentions its territorial scope: "For the purposes of the application of this Act in relation to the Province of Quebec (…)". On the other hand, the provision only applies to civil law institutions, specifically the usufruct, the right of use and habitation and the substitution.

Section 43.1 I.T.A., which sets the tax consequences of an "estate for life", is another example of an asymmetrical provision. At the 1998 APFF Round Table, the Agency was of the opinion that "the situations referred to in section 43.1 of the Act do not apply to usufructs, substitutions and rights of use or of habitation created in the province of Quebec.  These severances of the right of ownership are not life estates.  The former are civil law concepts, while latter is a common law concept".[lxxxvii]

We have no choice but to acknowledge that the application and identification of an asymmetrical provision becomes much easier when the legislator indicates the territorial scope and clearly specifies that he only has in mind one of the two major legal systems. In the context of the harmonization of tax legislation, it is a technique that will be used sparingly in the future since "although this technique makes the document less cumbersome, it is not advisable in most cases because it has the effect of favoring one system over the other and this is not conducive to the promotion of the common law and the civil law".[lxxxviii]

4. Study topics and fields of study

This final part provides an overview of the topics and concepts that have been identified, by Quebec's tax community, as problematic with respect to the application of federal tax legislation. Also outlined are some problems, arising from implementation of the harmonization program in the area of tax legislation, which require in-depth thinking.

4.1 "Propriété effective" / "beneficial ownership"

Federal tax legislation frequently uses the concepts of "propriété effective"/"beneficial ownership". These concepts, that originate from the common law, have no equivalent in civil law. In Quebec, the application of provisions in which they are used is problematic, as is apparent in numerous doctrinal critiques on this issue.[lxxxix] These concepts occur in a variety of contexts, including that of the transfer of property to a trust, in the field of guarantees and securities, with regards to the concepts of "disposition" and "acquisition", in the framework of international tax agreements, in respect to the rules limiting the choice of jurisdictions, etc.

While there is a presumption that equate certain legal institutions of the civil law to "beneficial ownership" in paragraph 248(3)f) I.T.A., the meaning of such expressions often remains vague for Quebec civil law experts.

4.1.1 Trusts

The comments made by Maurice Regnier on the Legislative Proposals Relating on Trusts, which were included in Bill C-43, reveal frustration within Quebec's tax community vis-à-vis the legislative proposals on trusts:

"As such, these same proposals relating to trusts are a welcome initiative for the anglophone provinces, since they eliminate many of the ambiguities arising from the bringing of property to a trust which the contributor can repeal at any time and of which he is the sole beneficiary. Since the trustee is in actual fact a figurehead, we are reminded that the fiscal text does not perceive this as a disposition and, consequently, a liquidation of assets.

Unfortunately, these rules cannot be applied to trusts in Quebec, where they are basically different from the English "trusts". This explains the perpetuation of the concepts of "legal and beneficial ownership", translated by the term "propriété effective", all of which expressions are meaningless for a Quebec legal scholar. There is an attempt to reconcile this notion of "propriété effective" with that of "beneficial ownership", but this proves to be a mere plaster, poorly set on Quebec trusts.

There is more. As an additional requirement to avoid any disposition, it is further specified that the trustee must be an agent "mandataire" in respect to the property he has received. This requirement is accounted for by an ambivalence recognized in English case law on the possibility for a person to concurrently hold the twofold attributes of trustee and agent. In the framework of the Civil Code of Québec, this situation is meaningless. A person may be either a trustee or the agent of a third party, but not both. The assets of the principal do not belong to his agent, whereas those of the trust may only belong to the latter.

In the final analysis, a scaffolding was built in an attempt to codify for the nine provinces of Canada the state of absence of disposition despite the transfer to a "trust", but which in no way makes sense for the six million Quebecers. It is not too much to hope that after a quarter of a century of this so-called tax reform, Finance somewhat differentiates its bulimia of amendments to attune itself to the peculiarities of Quebec law."[xc]

Many authors have noted, that these common law concepts, have no equivalent under civil law (especially since the coming in force of the C.C.Q. which allows more extensive use of the trust in Quebec). Can a trustee act both as a trustee and agent under Quebec civil law? Is there an equivalent to the concept of "bare trust" in Quebec civil law? Is there a "disposition", within the meaning of tax legislation, when an individual transfers assets to a trust and the transaction is subject to the civil law? How can the fundamental differences between the civil law trust, based on the concept of an autonomous patrimony and the common law trust, based on that of dual ownership between the trustee and beneficiaries, be resolved in a tax context? 

Despite the administrative position of the Canada Customs and Revenue Agency on these issues, which attempts to smooth over the differences between the common law provinces and Quebec, taxpayers of this province will only rejoice at the idea that solutions, reflecting the specific nature of the civil law of the province of Quebec, are currently being analyzed and will be presented to the tax community in the coming months.

4.1.2 Security interest and the securities branch

In common law, ownership may be subdivided into a set of multiple rights ranging for example, from the lessee's limited interest to fee simple, which is the most complete interest in a property. Thus, a person has an interest in a property rather than owning the property per se. This principle derives from the doctrine of tenures and estates going back to the middle ages and the feudal system. The right of ownership can be split into multiple interests and, as such, the "security interest" is no more than an interest in the property which exists independently from the other rights. On the contrary, in Quebec civil law there is no such fragmentation of the right of ownership for the purpose of securing the right or interest of a creditor. Although the creditor may, in specific cases, acquire a real right on the debtor's property, this does not constitute a right of ownership as contemplated at common law ("beneficial ownership"and "legal ownership").

How must an enactment be drafted to ensure that it refers to these concepts while taking into account the two legal systems, in each linguistic version? On the one hand, and more specifically, it is important to ensure that the deemed trust provisions that ensure that the various taxes are withheld, such as subsection 227(4) I.T.A., are well adapted to Quebec civil law. To that end, it is necessary, amongst other things, to ensure that the "droit de bénéficiaire" in favour of Her Majesty provided for in the French version of section 227(4.1) I.T.A., has as wide a scope and applies in the same way in Quebec civil law as the expression "beneficially owned by Her Majesty". We note that the Federal Court has recently affirmed, in a petition for stay of execution,[xci] that the presumed trust confers on Her Majesty a beneficial right in a trust whose patrimony is separate from that of the debtor. Her Majesty is deemed to hold such beneficial ownership (droit de bénéficiaire) in the property despite any other guarantee, including a mortgage. In the same vein, what to say of garnishment provisions for the purposes of levying source deductions found at subsection 224(1.2) I.T.A.? Do they apply uniformly under Quebec civil law and common law?

Moreover, federal tax legislation uses several terms to define the right or interest encumbering a property for the purpose of securing payment of a debt or the performance of an obligation. Whether we think of "garantie", "sûreté" or again the new definition of "droit en garantie"[xcii] proposed in section 123(1) of the Excise Tax Act,these terms are used indifferently as equivalent to the concepts of "security interest", "security"or even "guarantee".[xciii] Federal legislation as a whole would benefit not only from harmonization but also uniformization in this field.[xciv]

4.1.3 Acquisition and disposition of property

The concepts of "legal ownership" and "beneficial ownership"are, in common law, key to determining the time of acquisition of a property. Are these common law concepts applicable in Quebec for the purposes of determining, among other things, if a transaction subject to a leasing agreement is equivalent to an "acquisition" as defined in tax legislation? A number of authors have also raised the problems encountered in the application of these very concepts, not only in the context of leasing, but also of company takeovers, agreements with retroactive effect and mortgage foreclosures.[xcv]

4.2 Partnerships

Partnerships are an important tax vehicle in the I.T.A.[xcvi] However, since the concept of partnership is not defined therein[xcvii], it is necessary to refer to the private law of the provinces to determine, in a given situation, if a partnership has been formed.[xcviii]

Partnerships in the common law provinces and those in the province of Quebec are quite similar. In Quebec civil law, a contract of partnership is defined as being "a contract by which the parties, in a spirit of cooperation, agree to carry on an activity, including the operation of an enterprise, to contribute thereto by combining property, knowledge or activities and to share any resulting pecuniary profits".[xcix]

In the common law provinces, a partnership is generally defined as being: "the relationship that exists between the individuals who operate the business in common for the purpose of achieving profit".[c]

The first problem in connection with partnerships resides in the difficulty of determining if an agreement entered into by individuals earning income in common truly constitutes a partnership agreement. On the one hand, the agreement concluded by the taxpayers may prove to be a kindred legal institution such as co-ownership, in division or undeclared partnership. In the context of Canadian bijuralism, this problem is exacerbated by the existence of entities similar to the partnership such as a "joint venture", a consortium, a Nova Scotia unlimited liability corporation,[ci] etc.  It might also prove difficult to characterize an entity in the context of the international tax system when taxpayers use hybrid entities, hailing from foreign legal institutions akin to partnership.

The second problem relating to partnerships has to do with the question of legal personality:  does a partnership benefit from a legal personality separate from that of its members? For purposes of calculating its income, paragraph 96(1)(a) I.T.A. specifically provides that a partnership is deemed to be "a distinct person residing in Canada". On the other hand, for the other purposes of the Act, except as otherwise specified, a partnership does not have legal personality. The partnership is a conduct and, as such, is exempted from filing tax returns, even though it is expressly subject to some obligations of compliance and filing of certain returns.

The treatment of a partnership not as a taxable entity, but as a conduct, arises from the fact that in provincial private law the legal personality of a partnership is generally not recognized. Professor Prieur noted on this issue:

"[Translation] The legislative policy [not to acknowledge that a partnership has a legal personality] is supported by the private law which, from the common law as well as the Quebec civil law standpoint, deem that a partnership is not a separate body corporate, but a single intermediate vehicle which emerges without any formal procedure, but based on the dealings between the parties involved".[cii]

On the other hand, it goes without saying that a general conclusion of this nature does not have unanimous support, especially since the coming in force of the C.C.Q. In fact, the existence of the legal personality of a partnership is very much disputed in doctrine and case law.

In the matter of Ville de Québec v. Cie d'immeubles Allard Ltée,[ciii]the Quebec Court of Appeal has recently ruled that a partnership does not have a patrimony separate from that of its partners. Me Marquette noted on this question:

"[Translation] If the consequences of this decision, especially in tax matters […], have unavoidably put legal scholars on alert, it is because this issue is not only of academic interest […], but also has practical impact on the operating modes of partnerships."[civ]

In connection with this decision he also noted that:

"[Translation] This case will have a significant impact for tax law purposes. In fact, if the partners are deemed to directly hold undivided the assets of the partnership, what are we to make of the tax provisions in respect to asset transfers between the partners and the partnership? Thus, the civilian characterization of the attributes of a partnership has significant impact on taxation."[cv]

The decision Fournier v. Sous-Ministre du Revenu du Québec[cvi] highlights, in an income tax environment, the issues at stake with regards to the existence or not of a partnership's legal personality. In this matter, the Ministère du revenu du Québec had sent a notice of assessment to the law firm Fournier Demers & associés. The firm's partners then challenged the notice of assessment on the ground that it had not been sent to the appropriate party, a partnership not being a "person" within the meaning of the Act. The Ministry dismissed the legal argument put forward by the partners of the law firm, ruling that the partnership constitutes a body corporate separate from the partners. The Quebec Court, relying on the judgment rendered by the Quebec Court of Appeal in the case Ville de Québec v. Cie d'immeubles Allard Ltée,[cvii] concluded that, under the authority of the Civil Code of Lower Canada, the partnership did not have legal personality and, therefore, could not be a taxpayer as defined in the Act. The Court however noted: [translation] "It should be underscored that the Court applies the provisions of the Civil Code of Lower Canada, and it is within the realm of belief that the situation would be different under the authority of the Civil Code of Québec."[cviii]

Professor Charlaine Bouchard[cix] of the Law Faculty of Laval University, moreover notes that a partnership is endowed with a separate patrimony.

If the argument, claiming that a partnership has a patrimony that is distinct from that of its members, were to be ultimately confirmed by the courts, it might be possible to claim that a Quebec-based partnership is a person and therefore a taxpayer[cx] for all the purposes of the Act, which would mark a considerable change in the application of the I.T.A. to partnerships. Moreover, this conclusion would lead to fundamental differences between the treatment of partnerships in the common law provinces, where they are always devoid of a separate legal personality, and partnerships in Quebec.

So as to make the use of partnerships, as a conduct, less reliant on the uncertain evolution of doctrine and case law, it might be desirable to extend the presumption contained in paragraph 96(1)(a) I.T.A. relative to the separate personality of a partnership, to all the purposes of the Act and not to limit it to the calculation of its income as suggested by Professor Prieur :

"[Translation] The first presumption involves approaching the partnership as if it were a separate person. Would it have been more effective to record it forthwith as a "person" based on the definition in sub-section 248(1) of the I.T.A. and avoid such presumptions?"[cxi]

4.3 "Right or interest in property"/ "droit dans ou sur un bien"

The problems regarding the concepts of real and personal property (common law) and of movables and immovables (civil law) will be studied in-depth with a view to determining the similarities and differences between the two major legal systems. Adjustments may eventually be made to the provisions referring to these concepts so that the said provisions have a similar scope, to the extent possible, across Canada.

Moreover, in common law there are differences between the expressions "right in property" and "interests in property". In French common law, the corresponding concepts are "droit dans ou sur un bien" and "intérêt dans un bien". Yet, only "rights" ("droits") are recognized in civil law, not "interests" ("intérêts"). How can one harmonize the provisions that refer to the above-mentioned common law concepts without unduly expanding them or making them asymmetrical? To highlight the problem, let us take the example of paragraph 85(1.1)(f) I.T.A. and apply to it some of the solutions recommended in Bills C-50 and S-22:

85(1.1) Définition de «bien admissible» Pour l'application du paragraphe (1), «bien admissible» s'entend : f) d'un bien à porter à l'inventaire, à l'exception d'un bien immeuble ou bien réel, d'un droit ou d'un intérêt sur un tel bien et d'une option y afférente;

85(1.1) Definition of «eligible property» For the purposes of subsection (1), «eligible property» means (f) an inventory (other than real property or an immovable, an interest or a right in real property in an immovable or an option in respect of real property or an immovable);

In the French version, the common law concepts "bien réel" and "intérêt sur un bien réel" could be added and the civil law concepts of "immovable" and "right in an immovable" could be added to the English version. These changes should be made in such a way as to avoid including the common law "rights" (droits) since the provision is aimed only at common law "interests" (intérêts). The addition of "right in real property" would be manifestly problematic, since it would extend the scope of the provision to possibly include a "licence" (which is an interest but not a right).

4.4 "Tenure à bail" / "leasehold interest"

Tax legislation draws on the concept of "leasehold interest" in a variety of contexts, such as the "principal residence" rules and those relating to "capital cost allowance". This concept, unknown to Quebec civil law, is specific to the common law. The harmonization of provisions referring to these concepts will allay the uncertainty surrounding their application in the civil law context, an uncertainty which persists despite the efforts of the Canada Customs and Revenue Agency to define the concept.[cxii]

The harmonizor may correct this unijuralism in various ways. It might be possible to find a concept in Quebec civil law equivalent to that the "leasehold interest". The C.C.Q.'s lease is definitely one of the options to consider. It will be necessary, however, to examine whether the ownership right conferred by the common law "leasehold interest" is key to the application of tax law, in which case any comparison with the civil law "lease" will prove impossible. Another approach could be to define a leasehold interest for tax purposes. An exact characterization of the legal reality that lies behind this common law expression might help the Quebec taxpayer to delimit its scope.

Another problem the harmonization team will address is that of equating the term "emphyteutic lease" ("bail emphytéotique") (now "emphytéose") to "leasehold interest" ("tenure à bail"). The Agency's position, articulated in subsection 4 of Interpretation Bulletin IT-324[cxiii] is in keeping with the Federal Court of Appeal decision in Rudnikoff v. Queen.[cxiv] On page 5011, the Federal Court of Appeal's Chief Justice expressed the following opinion:

"There is, nevertheless, a distinction between ownership as defined in art. 406 c.c.  Namely : "the right of enjoying and disposing of things in the most absolute manner . . ." and "ownership" as given to an emphyteutic lessee, just as there is a difference between the rights of an ordinary lessee and an emphyteutic lessee.  In the latter comparison, however, there is one common factor and that is the existence of a lease. In my opinion this common factor is sufficient to bring the emphyteutic lease within the term "leasehold interest" as used in the Regulations and I share this view with the Trial Judge."

However, this opinion does not appear to be shared by all civil law experts. In an article on "emphyteusis" ("emphytéose"),[cxv] Me François Frenette, of the Law Faculty of Laval University, argues that [translation] "the relation between "emphyteusis" ("emphytéose") and "leasing" ("louage") is at most verbal and is inadequate to veil the reality behind the right of "emphyteusis". In this respect, it will be necessary, therefore, to determine if the C.C.Q. allows one to consider that the "emphyteusis" and "leasehold interest" are equivalent. In the affirmative, the opportunity of codifying this administrative and jurisprudential rule, could be analysed.

4.5 Implicit dissociation

The I.T.A. is a typical example of a federal public law act that relies on private law transactions. As mentioned several times in the foregoing, when a federal law enactment draws on a private law concept without defining it or giving it a specific meaning, it is necessary to refer to the private law in force in the particular province to complete it. The federal government has nevertheless the power to create and define legal concepts or institutions regardless of their usual meaning in civil law or common law. Admittedly, the complementarity of the civil law, when concepts are not defined in tax legislation, is recognized by the case law.[cxvi] Nevertheless, certain concepts, including those of "employee" (employé), "independent contractor" (travailleur autonome), "residence" (résidence) or "charity" (organisme de bienfaisance), although not defined in the Act, are systematically interpreted and applied in Quebec in the light of common law concepts developed by case law. The principles derived from the cases such asWiebe Door Services Ltd. v. M.N.R.[cxvii] (qualification of a person as employee), Thomson v. M.N.R.[cxviii](residence) or Pemsel v. Special Commissioners of Income Tax[cxix](charity) are applied uniformly across Canada, although they refer to private law concepts that sometimes considerably vary from civil law to common law.

This particular situation requires some reflection on the system that is to be used as a backdrop to the federal tax legislation where certain private law concepts are concerned. Is there, in some specific cases, an autonomous federal tax law, based on the common law, that requires that the specificities of provincial law and especially Quebec civil law be discarded? In the affirmative, how can one differentiate the concepts or principles in respect of which there is dissociation (explicit or implicit) from those for which there is complementarity with provincial law? Is it necessary, in these particular cases, to provide for specific interpretation rules or even to define certain concepts for purposes of the Act?

4.6 The concepts of mandataire and "agent"

Federal tax laws frequently refer to the concept of mandataire in the French version and that of "agent" in the English version. In common law and civil law, these concepts refer to the person who acts on behalf of another. Yet, in each of the legal systems, the terms have a different scope. Thus, at civil law, the mandate is an institution that has a specific framework (sections 2130 to 2185 C.C.Q.), while the common law concept of "agency" seems to have a wider scope or, at least, does not seem to be the most appropriate equivalent.

In fact, when a federal act, like the I.T.A., pairs the terms mandataire/"agent", the four Canadian legal audiences are likely to interpret these concepts in divergent ways, thus creating different tax consequences. Francophone civil law experts will refer to the C.C.Q. concept, while their anglophone counterparts will need more often than not to interpret the term "agent" which, although used in the C.C.Q., does not in fact translate the concept of mandataire. The common law audience, for its part, will more likely refer to the "agency" relation or even to the generic and current meaning of the term "agent".

These studies will attempt to determine if precisions are required in this area. The analysis and recommendations on this issue will have to focus not only on domestic law, but also on international tax laws because these same expressions are found in many tax conventions.

4.7 Harmonization and international law

The tax conventions signed between Canada and other countries contain references to a number of private law concepts, including "employee", "agent", mandataire, biens immobiliers, and "immovable property". According to which legal system are these terms and expressions to be interpreted? For example, when it is necessary to characterize a resident of Canada and Quebec as an "employee" or an "agent" enjoying independent status, what legal rules are applicable? What happens if the person is resident of another province?

In the same line of thought, a Canadian resident (as defined in tax laws) may create an entity, according to the legislation of another country, which is unknown in Canadian law or provincial law. In assessing the tax treatment of transactions including such a foreign or unknown entity or the taxation of any income therefrom, it is appropriate, first and foremost, to qualify it for canadian tax purposes. What legal system should serve as a basis for qualifying foreign entities? Quebec civil law? common law? What factors are considered in choosing the particular legal system?

Finally, the process of harmonizing tax legislation with the civil law of the province of Quebec will have an impact not only on domestic law but also on the conventions signed between Canada and other countries. Are there changes or precisions to be made to the Income Tax Conventions Interpretation Act[cxx] so as to ensure its effective application in the framework of the harmonization of federal tax legislation? Does the adoption, in domestic tax legislation, of terminology that is different from that used in tax conventions have an impact?

4.8 Licence

Federal tax laws, more specifically those relating to commodity taxes, refer to the concept of "licence". What is a "licence"? At common law, the term "licence" is generally defined as an act giving rise to a right of use without however creating a right of exclusive ownership nor an interest in the property:

"A licence is in the nature of a right or privilege to enter upon and use the grantor's land in a certain manner or for a specified purpose.  It is a personal right between the licensor and licensee and does not create any estate or interest in the land."[cxxi]

Let us take, for example, paragraph 25(f) of Schedule V of the Excise Tax Act, which lists exempt supplies and reads as follows:

"A supply of real property made by a public service body (other than a financial institution or a government), but not including a supply of

(f) real property (other than short-term accomodation) made by way of

(i)    lease, where the period throughout which continuous possession or use of the property is provided under the lease is less than one month,

(ii)  a licence,

where the supply is made in the course of a business carried on by the body;"

An understanding of the scope of the concept of licence and of the inherent differences that make it distinct from a lease proves to be very important in the circumstances surrounding this provision. In the case of a lease for a period of one month or more, the supply is exempt, whereas it is taxable if the contract is characterized as a licence, whatever the duration. In the province of Quebec, when a public services agency grants a right to use property to Quebec taxpayers, is the supply exempt or taxable under the Excise Tax Act? This issue has been studied by Revenu Quebec, in its capacity as administrator of the Excise Tax Act in Quebec.[cxxii]

The issue submitted to the tax authorities was to determine whether the supply by a marina of seasonal mooring rights - use of a mooring pontoon for the season - was taxable (lease of less than a month) or exempt (licence or lease of one month and more). From the outset, Revenu Quebec dismissed the possibility, in Quebec, of a supply of an immovable by means of a licence. Revenu Quebec's analysis consequently dealt solely with the concept of lease. It concluded that the mooring pontoon was supplied under a lease of over 30 days, so that the supply was tax exempt. The relevant excerpt from the letter of interpretation is reproduced below:

"In civil law, contrarily to what prevails in common law, the fact that use of a property is granted exclusively or not changes nothing to the qualification of the agreement. The contractual terms and obligations may differ, but the agreement will continue to qualify as a lease agreement.

Based on the facts submitted, we are of the opinion that seasonal use of a mooring pontoon constitutes supply by lease of an immovable for a period of over one month, which supply is not covered under the exception in paragraph (f), section 25, of part VI of schedule V of the federal Act. Consequently, such supply is exempt unless it is covered under one or the other of the remaining exceptions listed in section 25, part VI, schedule V of the federal Act."

The above example clearly shows that harmonization of the concept of "licence" is essential if the legislator wants to restore some equity between Quebec taxpayers and those of the common law provinces.

Conclusion

The harmonization program of tax legislation is taking off. One of its key objectives is to bring solutions to the more acute problems arising from the interaction between tax legislation and the civil law of the province of Quebec. In response to the comments made by many authors in Quebec, we confirm that the Departments of Justice and Finance Canada, as well as the Canada Customs and Revenue Agency, are aware of the specific nature of the laws of the province of Quebec and will work in consultation with the practitioners and universities to adapt tax legislation to French and English civil law.

The Department of Justice has drawn up, in the light of recent articles and case law, a list of the harmonization problems that require special attention. Practitioners, professors and tax experts are encouraged to submit to the Department of Justice, through the APFF committee created for this purpose, any problem between the civil law of the province of Quebec and federal tax legislation, other than those identified in this document. The proposed solutions to the various problems will be discussed in consultation with all the stakeholders of the tax community in the framework of the Symposium on the harmonization of fiscal legislation to be held in 2001.